What Impact Does Crime Reduction Have on Economic Growth in Latin America?

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Crime and violence are significant concerns in Latin America and the Caribbean, accounting for nearly half of the world’s intentional homicide victims. The region’s average homicide rate is 10 times higher than in other emerging markets and developing economies, and twice as high as sub-Saharan Africa. Central America is the most violent subregion. Insecurity has worsened over time, with annual increases in homicide rates of about 4% in the last two decades.

Crime directly affects millions of people and imposes large social costs. The delicate interplay between economic activity and crime makes determining causal effects difficult. More economic activity reduces crime, while less crime boosts economic activity. A recent study shows that increases in homicide rates significantly reduce economic growth. In Latin America, a 30% increase in homicide rates is estimated to reduce growth by 0.14 percentage points. Crime hampers capital accumulation by possibly deterring investors who fear theft and violence, and decreases productivity by diverting resources towards less productive investments like home security.

Reducing violence in Latin America could significantly boost the region’s economic growth, according to a study. Reducing crime levels to the world average would increase the region’s annual economic growth by 0.5 percentage points, a third of its growth between 2017-19. Addressing insecurity, particularly in countries with high homicide rates, could also increase GDP growth by around 0.8 percentage points. Governments in Latin America allocate significant resources to public order and safety, with countries like El Salvador and Jamaica spending over 2% of their GDP on this matter.

However, implementing more effective strategies could free up resources for other priorities. The IADB’s Security and Justice Evidence-based Platform provides scientific evidence on the effectiveness of existing security and justice solutions, highlighting that vehicular license plate recognition technologies do not significantly reduce transportation-related violence. Prioritizing crime-fighting strategies would enhance public safety and improve the region’s economic potential. Collaboration between policymakers, international financing institutions, academia, non-governmental organizations, and the private sector is crucial to address this significant obstacle to growth.